Cash holding of mutual fund houses is on the rise, reflecting the valuation discomfort among fund managers amid global economic uncertainties. The average cash holding of top twenty mutual funds houses based on assets under management (AUM) rose to a record 5.8% at the end of September from 4.3% a year ago, according to the data compiled by the domestic brokerage Motilal Oswal Financial Services.
The top three fund houses in terms of cash holding are PPFAS (holding of 15.9%), Axis (10.2%) and SBI (10%). There are several reasons for higher cash holding. First, the broad market seems to be richly valued. The benchmark Nifty 50 index at present trades at a price-earnings multiple of 21, which is 13% premium to the ten-year average multiple. Second, global economic uncertainty is rising in the form of inflation in the US, the UK’s economic crisis, high chances of recession in Europe and the Russian-Ukraine war. According to the data published by Bloomberg, the CBOE VIX, a volatility index created by the Chicago Board Options Exchange (CBOE), rose to 32.4 on October 16 from 25.6 on September 1. This reflects rising volatility in the US markets over the past month. In this context, fund managers are waiting for the right opportunity to deploy cash.
Mutual funds distributors also cite inflows in existing and new fund offers (NFOs) as another reason for higher cash holding by funds.
